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American Economic Review: Vol. 90 No. 1 (March 2000)

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ERC: A Theory of Equity, Reciprocity, and Competition

Article Citation

Bolton, Gary E., and Axel Ockenfels. 2000. "ERC: A Theory of Equity, Reciprocity, and Competition." American Economic Review, 90(1): 166-193.

DOI: 10.1257/aer.90.1.166

Abstract

We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern. The model is incomplete information but nevertheless posed entirely in terms of directly observable variables. The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets.

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Authors

Bolton, Gary E. (PA State U)
Ockenfels, Axel (U Magdeburg)

JEL Classifications

D63: Equity, Justice, Inequality, and Other Normative Criteria and Measurement
C78: Bargaining Theory; Matching Theory


American Economic Review


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